The yuan, which is pegged against the US dollar, had been
strengthening as the dollar's value increased dramatically and
China kept their target peg at the same level.

Since that August break the yuan's value has continued to
slide but is still likely far overvalued against what a
market-set would be. That's more or less the point of these hedge
funds making their currency bets.

With the yuan sitting at around 6.6 against the US dollar
currently, strategists at Bank of America
think it could be headed to 6.9 by
year-end.

The basic idea behind devaluing your currency is that it makes
your exports more attractive if trade partners are able to
acquire more of your goods for the same amount of nominal
dollars. This does, however, impact the purchasing power of your
domestic consumers and the profits of exporting
corporations.

But with the People's Bank of China publicly pledging to defend
the yuan — that is, continue to keep it relatively stable against
the dollar — the PBoC has been forced to spend billions of
dollars to defend its peg by accumulating yuan.

As a result, the PBoC's foreign-exchange reserves have diminished
significantly.

Goldman
Sachs

Earlier this week China's People's Daily
warned investing legend George Soros against "going to war"
on China's currency after
Soros made comments at the World Economic Forum in Davos
that a hard landing in China was inevitable and that China's
problems were one of the "root causes" of the world economy's
current struggles, particularly in emerging markets.

Soros, you'll recall, is one of the world's famed currency
speculators who "broke the Bank of England" back in the
early '90s. According to The Journal, a Soros representative
declined to comment on any currency positions.

Bill Ackman also threw his hat into the yuan ring earlier this
week when he
disclosed in a letter to investors that he's been betting on
a yuan devaluation since last summer and continues to hold that
position.